Hw #2 (answers)

Name: ______________________________________________ Class Time: ________________________________________ FIN 445 Homework #2 The goal of this assignment is to prepare you for the exam. This assignment is due on Monday, March 8 . Please make a copy of your answers, as I will post the answers to the homework for your use as a study aid. Finally, for those of you using calculators, I do not require that you write anything down on the paper. If you want to exclusively use the calculator and only write down the answer, that is your right. However, no partial credit will be given for a wrong answer. This policy will apply to the exam as well. If I can not clearly read your work, I will assume it is wrong. “There are no stupid questions, just stupid people that ask questions.”-unknown

1. You have just landed a job as a financial analyst at a convenient store. On your first day, your boss walks into your cube and asks you to evaluate two mutually exclusive projects: one is a new hot dog warmer and the other is nacho cheese station. Thoroughly disgusted and questioning your decision to take this job, you begin work immediately. Your boss provided you with the following information: The required rate of return is 10.75 percent for the hot dog warmer and 12 percent for the nacho cheese station. The convenient store has a 2 year payback cutoff on all capital expenditures. Year Hot Dog Warmer Nacho Cheese Station0-36,000-69,900 1 21,600 52,600 2 18,200 46,100 3 22,1000 Not knowing which metric your boss wants you to use to evaluate the project, you solve for two. What is the payback period for each of the 2 projects? Hot Dogs:

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